How investors gave Starbucks and Dunkin' Donuts a wake-up call
<p>Shareholders flexed their muscles this proxy season with proposals targeting palm oil, climate change and shale gas.</p>
The investor community wields increasing influence on corporate commitments to environmental sustainability, a reflection of its concern with the potential financial impacts on portfolios, a new report found.
This proxy season, sustainability proposals, at 38 percent, accounted for the largest category of all shareholder filings, according to "Taking Flight: Environmental sustainability proposals gain more attention" (PDF) from Ernst & Young.
"Most of these shareholder proposals are initiated by institutional investors -- socially responsible investment funds and public pension funds," explains Allie Rutherford, director of EY's corporate governance Group. "Yet the interest goes well beyond the submission of proposals. Investors of all kinds are engaging in the dialogue about sustainability. And the vote outcomes on sustainability-related proposals give testament to the broader level of support on these issues."
There is growing investor interest in a wide spectrum of social responsibility issues, says Ali Phillips, senior vice president at Obermeyer Asset Management in Colorado.
"Our primary goal is to make smart, thoughtful investments and to be responsive to our clients," says Phillips. "We have seen an uptick in client interest in sustainability. A couple of years ago, only about 10 percent of our investors had an interest in sustainability issues. We've seen that rise to about 30 percent of our client base. Our clients tend to ask about broad areas -- renewable energy opportunities, avoidance of sectors like mining -- as opposed to company-specific initiatives."
It's a surprise that the reported shareholder activity on sustainability issues is not higher, says Paul Solli, a partner at San Francisco-based investment management firm Aperio Group.
"We've seen an enormous increase in attention to climate, energy and sustainability issues this past year," Solli states. "We work with many of the top wealth managers in the country. There has been a spike in requests to migrate away from climate risk investments. We are working with two foundations right now that are divesting of fossil fuels. Last year, we helped six public and private foundations do so; Jubitz Foundation was one of the few that made their decision known."
Solli directly attributes the shift to Bill McKibben's 350.org. McKibben and his team have been on a national roadshow making the case for carbon divestment at universities, including Colby, Bowdoin, Middlebury and Swarthmore. McKibben has prompted students to pressure university endowments to reexamine their investment approaches.
Solli believes that McKibben has elevated the visibility of corporate sustainability practices and climate risks: "McKibben has gotten everyone -- university endowments and beyond -- to talk about this."
Investor and business advocacy group Ceres also is experiencing an increase in investor engagement. The Ceres team sees a banner year, in terms of successful climate-related shareholder resolutions. It recently reported a record 110 resolutions with 84 U.S. companies, the majority of which are in the energy sector. Filers included some of the nation's largest pension funds, such as CalSTRS and the New York State Comptrollers offices.
"The strength of this year's proxy season shows unwavering investor concern about how companies are managing the profound climate-related risks," says Ceres President Mindy Lubber, who helps coordinates the shareholder resolutions.
A notable example of how investor pressure has catalyzed a dramatic shift in corporate practices is Continental Resources, the largest oil producer in North Dakota. Last year, investors sent letters to 21 of the largest shale oil producers asking them to curb natural gas flaring, a process that generates significant greenhouse gas emissions. This year, Continental set aggressive goals to reduce or eliminate gas flaring.
Other examples of recent investor impact include commitment to use 100 percent sustainable palm oil by The Hershey Company, Dunkin' Donuts and Starbucks following shareholder proposals. Palm oil is a primary ingredient in many supermarket items but its production has caused global deforestation. Given the critical role forests play in climate control, the palm oil industry has contributed significantly to climate change.
The EY team predicts environmental and sustainability will continue to be top shareholder concerns.
"We expect to see more shareholder involvement, more company-focused proposals," Rutherford says, "and as a result, more corporate disclosure and responsiveness."